Friday, November 14, 2008

Alloy Steel Update

Last month, the CEO of Alloy Steel International, Inc. (OTC BB: AYSI.OB) gave us a brief update on the company and mentioned they were planning to issue a release after they finished their accounting for the quarter ("E-Mail from the CEO of Alloy Steel International, Inc."). Having not seen any update, I followed up with the company again yesterday, to ask if they were planning to file an 8-k or issue a press release before they filed their 10-k at the end of the year. Today I got the following response from the company's CFO, Alan Windus,

The auditors are currently reviewing end of year figures; we should be in a position to lodge a preliminary profit advice late next week.

Alloy Steel shares closed at 72 cents per share today, trading at less than 5x the company's earnings over the trailing twelve months. I have a limit order in to buy a few more shares at a slightly lower price. I don't have a lot of visibility on this one in the near term. The recent strengthening of the U.S. dollar versus the Australian dollar should negatively impact earnings as reported in U.S. dollars, and the global economic slowdown is of course impacting the company's customers in the mining industry. On the plus side, Alloy Steel sells a product that can increase efficiency and reduce costs, and increased efficiency and reduced costs should continue to be a compelling proposition for mining companies. Plus, Alloy Steel is starting from such a small base and has such limited exposure outside of Australia, that it might still be able to grow its business during a slowdown. We'll see. Longer term, if the company makes it through this period, I am bullish about its prospects.

The photo above, of a truck bed outfitted with Alloy Steel's Arcoplate wear plates, is from the company's website.

6 comments:

Dave, I have been following this company a bit (hold no shares) alongside you. How do you see earnings coming in?

I see them inline, but I'm weary of their outlook as commodity prices have fallen, demand for their products might fall in the near future. As stated above, you plan to buy more. You might want to lower your limit price "just in case" the stock sells off on outlook.

If I had to guess, I'd say earnings might be ~$1.3 million on ~$3 million in sales, but that's a rough guess based on last quarter's finished goods, a couple of deals announced since then, and a haircut for the currency movement and additional cap-ex on the new mill.

When you say you think earnings will be "inline", what do you mean? There aren't any analysts covering the company -- do you mean inline with the last quarter's earnings?

Placed orders this morning for more Alloy Steel at the same limit price. Here's something interesting: the order I placed through Fidelity filled completely at 9:35am (at .652). The order I placed through Scottrade still hasn't been filled.

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